MARKET WATCH: Energy prices decline in dull markets

Energy prices continued to slip Dec. 16 in ho-hum markets.

“With the strong set-back in gold during the week, Brent is now out-performing not only West Texas Intermediate for the year, but also gold. Passive length in a front month rolling position in US natural gas is printing so far this year a negative return of 42.5%,” said Olivier Jakob at Petromatrix in Zug, Switzerland.

“The crude oil correlations have been rising back over the last few weeks against the euro-dollar [valuation] but are declining vs. Standard & Poor’s 500 Index,” he said.

Jakob noted the S&P 500 “was under pressure during the week, losing 2.9% while the NASDAQ was down 3.5%. For the year, the S&P 500 is down 3.02% and the NASDAQ down 3.68%. The global picture has not changed from last week: among the main indices; the US markets are outperformers while the other indices average [a loss of] 16.9% for the year.”

He further reported, “The European 10-year bond yields were generally weaker during the week, except for Italy who had a small increase. The Italian 10-year bond yield is still slightly above the unsustainable 7% and at a 5% spread to the German bond yields. It is also important to keep in mind that 17.9% (€139 billion) of the European Financial Stability Facility funds are supposed to come out of Italy.”

Jakob said, “There are not many new things to write about the Europe crisis apart that there is more conviction that Europe will be in a formal recession in 2012. On Dec. 16, Fitch the French-owned rating agency reaffirmed the AAA of France and put Belgium, Spain, Italy, Slovenia, Ireland, and Cyprus on credit watch. The risk of the S&P downgrade of France is still an overhang on the market. After having made so much noise about potential downgrades, the S&P needs now to come out of the closet and announce whether it downgrades France or not. Until then, trading on the long side will carry strong overnight risk.”

Trading will slow toward the end of the week with some markets closing early Dec. 23 and remaining closed Dec. 26 for the Christmas holiday.

In other news, analysts in the Houston office of Raymond James & Associates Inc. said, “Adding more uncertainty to the ever fragile global markets, we have a 27-year-old in charge of a nuclear program and communist country” as Kim Jong Un apparently has taken over power in North Korea following the death of his father Kim Jong Il.

“Meanwhile, US politicians continue to fight over the extension of the payroll tax cut, leaving many to wonder if they are going to continue to negotiate into the holidays while we are in the relaxing comfort of our home,” Raymond James analysts said.

Energy prices

The January contract for benchmark US light, sweet crudes dropped 34¢ to $93.53/bbl Dec. 16 on the New York Mercantile Exchange. The February contract fell 32¢ to $93.75/bbl. On the US spot market, WTI at Cushing, Okla., remained out of step with the front-month futures contract, down 34¢ to $92.88/bbl.

Heating oil for January delivery declined 2.2¢ to $2.80/gal on NYMEX. Reformulated stock for oxygenate blending for the same month dipped 0.07¢ but closed essentially unchanged at a rounded $2.49/gal.

The January natural gas contract was unchanged at $3.13/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., also was unchanged at $3.06/MMbtu.

In London, the new front-month February IPE contract for North Sea Brent decreased 25¢ to $103.35/bbl. Gas oil for January lost $4 to $894.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes declined $1.03 to $103.57/bbl. So far this year, OPEC’s basket price has averaged $107.50/bbl.

Contact Sam Fletcher at samf@ogjonline.com.